By Professor Mark Aleksanyan, Adam Smith Business School and Professor Kenneth Lee, Loughborough University Business School
This summary paper is drawn from the full working paper available at SSRN.
Abstract
This research study examines the unintended consequences of the Markets in Financial Instruments Directive (MiFID) II, focusing on its impact on investor relations (IR) professionals across different jurisdictions. Drawing on data from perception surveys of 132 IR professionals in the UK, the EU and Switzerland, we show that MiFID II has reshaped IR practices, increasing the prominence of IR professionals as key ‘messengers’ of corporate information and investment advice in equity markets. However, this resulted in moving away from a market-transparent analyst-intermediated model of engagement with investors to a nontransparent model of private direct IR-investor engagement. Our findings contribute to ongoing regulatory debates by providing empirical insights into MiFID II’s broader market effects and advocating for policy adjustments to mitigate its negative consequences. Specifically, we suggest that regulators should incentivise analyst coverage, particularly for smaller firms, to enhance market transparency and information flow.
Introduction
The Markets in Financial Instruments Directive (MiFID) II is a comprehensive European Union regulation that was introduced in January 2018 aimed at increasing transparency, investor protection, and financial market efficiency by governing trading, reporting, and advisory practices across EU member states. Even before its enactment, commentators and practitioners voiced concerns that the regulation – particularly the requirement to unbundle payments for investment research from payments for trade execution – would create negative unintended consequences for certain groups of market participants. The debate about the merits and consequences of MiFID II continues to this day and it remains live issue for regulators and financial market policy makers. For example, in the period between 2018 and 2024, the Financial Times alone published over 400 articles discussing various aspects of MiFID II impacts. Similarly, more than 20 academic research studies published during this period have tried to identify and quantify some of MiFID II effects. Interestingly, despite the breadth and scope of the regulation’s possible effects, most academic studies focused on just one aspect – the impact of MiFID II on changes in sell-side analyst research coverage and forecast properties and their market effects (Anselmi and Petrella, 2021; Fang et al., 2020; Fu et al., 2024; Guo and Mota, 2021; Lange et al., 2024). While the focus on investment research is justifiable and important – as the availability of adequate analyst coverage and research quality are amongst key enablers of capital markets’ transparency and efficiency – investor relations are an important but under researched aspect of the market’s belief formation process (De Jong et al., 2007). And to the best of our knowledge, only one study, by Abhayawansa et al. (2024), examined the impact of MiFID II on other market actors and their dependencies.
This research paper provides evidence across the broader European continent regarding the impact of MiFID II from the perspective of IROs. The objectives and contributions of this note are threefold. First, we add to the literature on the impact of this landmark regulation on an underexplored field – the role and practice of IR in the market for information and investment advice in a broader European context. Second, we provide empirical evidence-based policyrelevant recommendations to UK and European regulators who have been grappling with the issue of addressing MiFID II-induced disruptions. Finally, our findings provide European IROs and IR professional bodies with necessary ‘intelligence’ for furthering their resilience and development as a field of professional practice.